The budget
In our view, the budget presented to Parliament by the finance minister P Chidambaram contains significant progress for the publishing, printing and packaging industry. Excise duties have been reduced across the board of manufactured items by 2 per cent and, in an attempt to help the education sector, by 4 per cent on printing and writing papers. Normally this would mean that both locally manufactured and imported printing equipment and consumables would become less expensive. Imported equipment and consumables would attract 2 per cent less countervailing duty thereby reducing the total import duties from 31.76 per cent to 28.64 per cent.

The paper shortage
The problem is that the Indian paper mills are unwilling to pass on the 4 per cent excise reduction to the printers. Since the major paper manufacturers (with the exception of ITC P&SPD and JK) have not invested in expansion beyond widening and speeding up their existing paper machines, there has been a shortage of good paper in the Indian market. To some extent Chinese imports have been filling the gap in coated stock, coated board, and newsprint. But the Chinese mills are new and the paper is not yet as good as it will eventually get and the problem of uncoated stock is in any case not addressed.

The Indian paper mills have in the main swallowed up the entire 4 per cent of the excise reduction by the finance minister by raising the base price of the paper by 4 per cent. So the net price of paper remains the same for those who were paying excise, but 4 per cent more expensive for print exporters who are exempt from excise, and packaging units, who pay excise and then claim MODVAT benefits. Others who may be exempt from paying excise may include printers and converters in various backward area industrial estates or special economic zones although these benefits generally accrue to their customers, the consumer product companies.

The print exporters were in trouble anyway since the Indian paper mills cannot really supply either the quality or the quantity required to meet their commitments in a viable and timely manner. Late delivery and short delivery are reminiscent of the license Raj when there was a cash premium for everything from paper to railway wagons. Exports of print and packaging were growing by 30 to 40 per cent in the financial years before 2007-08. Largely because of the paper quality and availability issues and the upward valuation of the Rupee against the dollar, this growth has diminished to only 15 to 20 per cent. This is a segment that offers increased employment to knowledge, skilled, and unskilled workers not just in the metros but also in the large plants that have been built and are under construction in secondary cities and towns. This is a technology driven industry that requires high capital investment and many printers have imported equipment under the government’s EPCG schemes. However, because the industry is fragmented it is unable to articulate its growth or its economic and social contribution.

Education
Another important breakthrough in the budget is that the finance minister has made the increased expenditure in education a bit clearer. In 2004 itself not long after taking office prime minister Manmohan Singh said that he planned to double the education budget. However, it was never clear what the base figure was or when the doubling would come about although it was a fair guess that central expenditure on education took up a paltry 2 per cent of GDP at the time. Bear in mind that education is a state subject and it is never clear how expenditure by the centre can actually be spent or influence “outcomes.” Nevertheless, the finance minister has made it clear that central expenditure on education will go up to 3.5 per cent of GDP or about Rs 35,000 crore (US$ 9 billion). While we think that education requires far more expenditure (this is the only issue where we are in agreement with the CPM) at least this is a concrete increase. Now, the question is how and who will spend this money and on what. What will be the amount spent on actually building schools and classrooms and how much will be spent in producing better and more textbooks.

The solution
Finance minister, according to the IPP Star Printing Industry Survey at the current rate of growth in paper consumption, we are headed for a paper famine of 5 million tons by 2009-10 financial year. It is unlikely that the Indian paper mills can bridge this gap. They are simply uninterested or unable to invest in new and modern paper mills and machines. Our suggestion is that since books, magazines, and newspapers attract no customs duty or even sales tax, and since imported newsprint attracts a nominal 5 per cent tax (newspaper barons are more influential than schoolmasters), the import of all kinds of writing and paper should also attract at most a nominal 5 per cent duty.